Chapter 9. The Brazilian Dilemma: World’s Leading Source of Soybeans

For Brazil, the door into the soybean world opened in 1972 with the collapse of the massive Peruvian anchovy fishery, a leading worldwide source of protein supplements in livestock and poultry rations. Since this fishery accounted for one fifth of the world fish catch and for an even larger share of animal feed protein supplements before its demise, its abrupt collapse created a protein shortage that drove soybean prices off the chart. These steep price rises, combined with a U.S. soybean export embargo in 1973 when Washington tried to check the inflationary rise in domestic food and feed prices, set the stage for Brazil’s entry into the market. The embargo, which raised concerns about the reliability of the United States as a supplier, led importing countries in Europe plus Japan to encourage soybean production in Brazil and Argentina. 6

In a prescient move, the Brazilian government invested heavily in a comprehensive soybean research program, including the breeding of varieties adapted specifically to local soils and growing conditions throughout the country. Government leaders also started thinking seriously about how to create the infrastructure needed to link the country’s vast unplowed interior to world markets. These research initiatives, along with economic incentives, boosted Brazil’s soybean production from 1 million tons in 1969 to 15 million tons in 1980. 7

Initially, production growth was concentrated in the traditional farming regions in the south—the states of Rio Grande do Sul, Santa Catarina, Paraná, and São Paulo—but after 1990 it began to spread rapidly into the cerrado. (See Figure 9–1.) Cerrado soils are highly acidic, saturated with aluminum, and low in phosphorus, with a limited capacity to store water. These characteristics provided a formidable barrier to cultivation until Brazilian scientists discovered that adding 3–8 tons of lime per hectare reduced the acidity and neutralized the free aluminum in the soil. Once this was done, the deep well-drained soils of this savannah-like region could be farmed. Liming and heavy fertilization, combined with the breeding of varieties that could tolerate higher aluminum levels, set the stage for the expansion. 8

On the downside, as Kenneth Cassman of the University of Nebraska notes, it is likely that soil organic matter will deteriorate rapidly in these tropical and subtropical soils, where temperature, humidity, and abundant rainfall all favor the decomposition of organic matter and crop residues. This contrasts with the U.S. Corn Belt, where cold winters slow down soil decomposition. The carbon sequestration on this land once it has been tilled for a few years will be far less than in the original cerrado, thus contributing to higher atmospheric carbon dioxide levels. 9

Analysts estimate that the Brazilian cerrado includes an additional 75 million hectares (185 million acres) of potentially cultivable land, an area almost as large as the U.S. area planted to grain and soybeans. Although Brazil now produces one third of the world’s soybeans, U.S. Department of Agriculture experts believe the country has the potential to easily triple its current soybean production. 10

Argentina has also achieved hefty gains in soybean production, but its potential for continuing rapid expansion is limited compared with Brazil. Indeed, part of Argentina’s soybean expansion has been at the expense of grain. 11

Brazil’s soybean production has expanded at a pace rarely matched for a major crop in any country. In 1969, Brazil was producing only 1 million tons of soybeans. (See Figure 9–2.) By 1986, it produced 13 million tons compared with a U.S. output of 53 million tons. Since then, Brazil’s production has expanded more than fivefold—jumping to 66 million tons in 2004, compared with U.S. production of 78 million tons. Within the next few years, Brazil is likely to become the world’s leading soybean producer, a position held by the United States since it displaced China a half-century ago. While Brazil can expand soybean output severalfold, the U.S. potential for expansion is limited by the lack of new land to plow. 12

On the import side of the equation, China’s soybean imports, which were negligible a decade ago, are now four times those of Japan, the traditional leader. (See Figure 9–3.) For several decades the largest movement of soybeans between two countries was that between the United States and Japan. Now the largest bilateral flow is between Brazil and China. 13

By 2004, Brazil’s 24 million hectares of soybeans had exceeded not only its area of corn, wheat, and rice individually, but the area of all of them combined. The 2004 soybean harvest of 66 million tons exceeded the grain harvest of 60 million tons (Figure 9–4), marking the first time an oilseed harvest has eclipsed that of grain in any large agricultural country. In the United States, the area in soybeans passed that in wheat in 1978 and now rivals that planted to corn. Even so, total U.S. soybean production of 78 million tons in 2004 is scarcely one fifth the size of the U.S. grain harvest of 360 million tons. 14

Brazil’s national agricultural research network, EMBRAPA, has worked hard and successfully to adapt temperate-zone soybean varieties to Brazil’s subtropical growing conditions. Reflecting its success, the soybean yield per hectare in Brazil today has edged above that in the United States, long the world leader. 15

Despite Brazil’s extraordinary successes, future expansion will not always be easy. Brazil’s soybean growers are faced with a debilitating Asian rust disease that is now curbing yields. Spraying crops with a fungicide to control the disease, which cost $1.2 billion in 2003 and 2004, is sometimes ineffective because frequent rains wash the treatment off the plants. In some areas, the cost of protecting the soybeans from this damaging disease may now go as high as 50¢ per bushel, which represents roughly 8 percent of the crop’s value based on prices over the last decade. 16

A lack of infrastructure, principally roads and electricity, also hinders Brazil’s soybean expansion. Because the cerrado on average is some 1,600 kilometers by road from the east coast ports, getting soybeans from the interior to points of export is costly. Although Brazil’s cheap land gives its soybean farmers a huge edge over their U.S. counterparts, the United States has a well-developed barge system for moving the product from the Midwest down the Mississippi River to the port of New Orleans. Beans destined for Asia also can move easily by rail from the U.S. Midwest to West Coast ports such as Seattle and Portland. 17

Transportation costs loom large for Brazilian exports of soybeans and grain. First the commodities must be moved to a port either on the coast or on one of the tributaries of the Amazon. Ships loading at Amazon ports have to travel more than 1,500 kilometers, or nearly a thousand miles, merely to get to the Atlantic Ocean. If they are going to Asia, they must then either go north through the Panama Canal or south around the Cape of Good Hope. Either way, the distance is some 20,000–22,500 kilometers. Even shipping to Europe is costly. Marty McVey and his colleagues with AGRI Industries point out that shipping soybeans from Sapezal, Mato Grosso, to Europe costs $1.59 a bushel, while from Iowa it is only 84¢, barely half as much. 18

Within Brazil, simply getting soybeans from the more remote parts of Mato Grosso, which straddles the cerrado and the Amazon basin, to port can be costly. In a world where oil prices are likely to be rising, the variation in transportation costs of moving soybeans, corn, or meat to the outside world could shape Brazil’s pattern of development, pushing it toward meat exports rather than the far bulkier shipments of grain. 19

Creating the agriculture transport infrastructure within Brazil will take time and, among other things, vast amounts of capital investment. Nonetheless, these barriers are not insurmountable. Soybean output will likely continue expanding until Brazil becomes the world’s largest producer, most likely well before the end of this decade.